Nugent v. Boyd/Dissent Catron

by John Catron

United States Supreme Court

44 U.S. 426

Nugent  v.  Boyd

Mr. Justice CATRON.

I think the adjudication in this case is in conflict with that made in the Circuit Court at New Orleans in Christy against the City Bank; and in support of which, a majority of my brethren saw proper to express their views at a previous day during this term, in the unsuccessful application of the bank for a prohibition; but that the cases are alike-and one cannot be maintained, and the other overthrown.

In that case the petition of the assignee set forth the entire legal grounds, why the District Court should annul the judgments in the state court, and pronounce the sale void.

1. That the property sold was given in by Walden, the bankrupt, as part of his effects.

2. That the bank had notice thereof, before the sale by the sheriff.

3. That the sale was void, being contrary to the Bankrupt Law, which operated to stay all further proceeding so soon as Walden's petition was filed, and was a bar to any further prosecution of the suit until an assignee should be appointed. That the sale with notice was a fraud upon the act of Congress, and the other creditors of Walden, by reason of the law, because the bank was endeavoring to obtain an illegal preference.

4. That at the sale the property was struck off in blocks, although consisting of different buildings, at two-thirds of its value: 'All of which actings and doings are prohibited by law, and render said sale null and void.'

5. That the sale was in other respects irregular, the legal formalities not having been observed.

6. That the mortgage was void for usury, because in effecting the loan the bank gave Walden bonds on the Second Municipality instead of money, and they were then at a discount at from twenty to twenty-five per cent.

To these allegations the bank answered:--

1. By plea that the District Court was not by law empowered to decide on the matters charged.

2. That all the matters and things set forth had already been decided by a court of competent jurisdiction-referring to the adjudications by name.

3. The defendant answers, and avers, that the mortgage was legal and valid, and given upon a full and adequate consideration.

4. That the order of sale was duly granted, and the writ thereon properly issued: and that the property described in the petition was lawfully seized, and after a compliance with all the legal formalities, was sold, and adjudicated to the defendants: that the price was fully paid by giving a credit-and that the property is held under an indefeasible title.

5. All the allegations in the petition not admitted, are denied, and a trial demanded of them.

This answer was excepted to as containing no legal grounds of defence; the question was adjourned, under the 6th section of the Bankrupt Law, to the Circuit Court to be there heard and determined. It stood in that court as on bill and answer: the answer was taken of course as true in all its parts-the only question being whether any legal ground of defence was furnished by the plea, supported by an answer, denying the alleged unfairness of the sale presenting the same question in substance as did the case of Harpending v. The Dutch Church, in 16 Pet. By setting the case down on plea and answers, the proceedings in the supreme and inferior state courts were admitted of necessity to have been properly and fairly conducted; and the sale legally and fairly made. This was the undoubted aspect of the case as presented to and decided by the Circuit Court. Its decree, in the form of instructions to the bankrupt court, is, first-That the latter had full and ample powers to try all the questions presented in the assignee's petition: 2dly. That the sale made under the seizure by order of the state court was void; and that the bankrupt court should declare it so: 3d. That the bankrupt court had full power to re-try the validity of the mortgage and ascertain whether it was void for usury or otherwise: and this on the ground exclusively that the proceedings in the state courts were annulled by force of the bankrupt law, and the fact of Walden applying for its benefit.

Taking the petition and answer together, and a case existed in all its features like the present, on the title by execution; each being a fair and regular proceeding in the state court. One is suppressed-and the other maintained. And on what ground does the district judge assume to act contrary to the former adjudication? Because it was equitable and for the best interests of the estate to be distributed, in his judgment. The obvious meaning of which is, that he had power to overthrow the title or not, at his discretion; and that such discretion was the law of the case and the tenure of the title, according to the true intention of the Bankrupt Act. On this assumption are the two cases attempted to be reconciled; and on no other can they avoid direct conflict, even in appearance. In reality, the one title is as good as the other. The tendency of such a doctrine is too threatening to titles to be silently acquiesced in. Did Congress intend that the force and effect of judgments and executions in a state court, should depend on the sole discretion of a judge sitting in bankruptcy? Was it intended to discard the axiom, that unrestrained discretion in those that govern, is inconsistent with the rights of those that are governed, be they of property or person? It is very difficult to suppose so; and as difficult to accommodate the construction of the act to such a supposition. It is declared, 'that it shall not be construed to annul, destroy, or impair, any liens or mortgages, on property real or personal, which may be valid by the laws of the states respectively.'

Here two liens are combined; one by mortgage, the other by execution levied. In Christy v. The City Bank, as already stated, that by mortgage was recognized as a right protected by the act, but to be administered in the bankrupt court only; that by execution was pronounced void. This decision the court below was asked to follow out, in the case before us, and refused.

By the execution levied, the lien 'was valid by the laws of the state'-in the words of the saving clause; the remedy by seizure created the right; to annul, or to stay the execution, impaired a right, excepted out of the act. Since the opinions were delivered in the ex parte application of the City Bank, we have in effect so held at the present term, in Waller v. Best. ^[1]

In making exceptions in favor of liens created by judgment and execution, Congress was governed by practical considerations. The states usually were large, the bankrupt courts in many of them far off from the creditors, the debts owing by the bankrupt small in amount to a great extent; for these recoveries would be had in the inferior courts and before magistrates; the property would be seized by execution, and he the debtor be driven into bankruptcy; this step might be taken secretly. The officer having possession of the property had to dispose of it according to the commands of the writ, and make return to the state tribunal; a return that the debtor had applied for the benefit of the bankrupt law would not be a legal return, as I have held, and always supposed; and that a decree declaring the party a bankrupt, would not alter the case; as in either, the lien would be not only impaired, but destroyed where the levy alone gave it, as is the case in many instances. To drive the small creditor into the bankrupt court to establish his demand and effectuate his lien, would often have been worth more in trouble and expense than the debt, and in the mean time the property, being abandoned by the officer, and not taken possession of by the assignee, would in many instances perish. These facts were too palpable for Congress to overlook. To protect such liens, I take it the exception was a compromise between the opponents and friends of the bill; the one side supporting rights secured by the state laws, and the other seeking to adopt a different rule under the Constitution of the United States, in regard to the relation of debtor and creditor.

In many cases the bankrupt might owe debts in other states than that where he would be declared bankrupt; then other difficulties would arise on executions being levied in the foreign jurisdiction, to which the powers of the bankrupt court could not extend. In all the cases enumerated the assignee had given to him the same powers the bankrupt previously had, to sue and defend, and no material difficulty could arise (or has arisen) in adjusting the claims in the state courts, to which the assignee was bound to apply.

That a mortgage can be foreclosed in the bankrupt court, and the lien given by it be preserved there, I have never doubted, if the jurisdiction of a state court had not attached, and was not ousted by the proceedings in bankruptcy.

For the foregoing reasons, I think the court of Louisiana was mistaken when it assumed to have power to suppress the sale made by the sheriff, or to let it stand, at its discretion.

The decree is deemed entirely proper; nor would the reasons for it have been noticed had not my brethren adopted them to the extent above; and with which adoption I cannot concur.

Notes

1. Ante., p. 111.